Acquisition of Patents and Intangibles

As discussed in Note 9 below, the Company consummated an asset
purchase on October 16, 2012, and paid $3,500,000 for certain
assets, including intellectual property, certain related licenses
and sublicenses, FDA filings and various forms of the leronlimab
(PRO 140) drug substance. The Company followed the guidance in
Financial Accounting Standards Topic 805 to determine if the
Company acquired a business. Based on the prescribed accounting,
the Company acquired assets and not a business. As of
November 30, 2018, the Company has recorded and is amortizing
$3,500,000 of intangible assets in the form of patents. The Company
estimates the acquired patents have an estimated life of ten years.
Subsequent to the acquisition date, the Company has continued to
expand, amend and file new patents central to its current clinical
trial strategies, which, in turn, have extended the protection
period for certain methods of using leronlimab (PRO 140) and
formulations comprising leronlimab (PRO 140) out through at least
2031 and 2038, respectively, in various countries.

On November 16, 2018, the Company completed the acquisition of
substantially all of the assets of ProstaGene, LLC
(“ProstaGene”), a biotechnology start-up company, which included
patents related to clinical research, a proprietary CCR5 technology
for early cancer diagnosis, and a noncompetition agreement with
ProstaGene’s founder and Chief Executive Officer, Richard G.
Pestell, M.D., Ph.D. The acquisition of ProstaGene’s assets
expands the Company’s clinical development of leronlimab (PRO
140) into cancer indications and commercialization of certain
cancer diagnostic tests.

The aggregate purchase price paid for the ProstaGene acquisition
was $11,558,000 based on the issuance of 20,278,000 shares of
common stock of CytoDyn at $0.57 per share, including 1,620,000
shares earned, but not yet issued, by the investment bank for
advisory services. In connection with the purchase, the Company
entered into a Stock Restriction Agreement
(“Agreement”), restricting the transfer of 8,342,000
shares of common stock payable to Dr. Pestell for a three-year
period from the closing date of the transaction. In the event
Dr. Pestell’s employment with the Company is terminated,
as defined in the employment agreement, the Company will have an
option to repurchase such Restricted Shares from Dr. Pestell
at a purchase price of $0.001 per shares. The Restricted Shares
will vest and be released from the Agreement in three equal annual
installments commencing one year after the closing date of the
acquisition of ProstaGene.

A summary of the net purchase price and allocation to the acquired
assets is as follows:

ProstaGene, LLC

CytoDyn Inc. Equity

$

11,558,000

Acquisition Expenses

741,297

Release of Deferred Tax Asset

2,826,919

Total Cost of Acquisition

$

15,126,216

Intangible assets

$

15,126,216

Other

—

Allocation of Acquisition Costs

$

15,126,216

Assets acquired from ProstaGene include (1) patents issued in
the United States and Australia related to “Prostate Cancer
Cell Lines, Gene Signatures and Uses Thereof” and “Use
of Modulators of CCR5 in the Treatment of Cancer and Cancer
Metastasis,” (2) an algorithm used to identify a 14-gene signature to predict the
likelihood and severity of cancer diagnoses, and (3) a
noncompetition agreement in connection with an employment agreement
with Dr. Pestell as Chief Medical Officer of the Company. The
fair value of the assets acquired approximates the consideration
paid. The Company did not assume any liabilities. The Company
accounted for the ProstaGene acquisition as an asset acquisition
under ASC 805-10-55 “Business
Combinations” because the assets retained from ProstaGene do
not include an assembled workforce, and the gross value of the
assets acquired meets the screen test in ASC 805-10-55-5A
related to substantially all of the fair value being concentrated
in a single asset or group of assets (i.e., the proprietary
technology and patents) and, thus, is not considered a business.
Thus, management concluded that the acquisition did not include
both an input and substantive processes that together significantly
contribute to the ability to create outputs.

The fair value of the technology acquired is identified using the
Income Approach. The fair value of the patents acquired is
identified using the Cost to Reproduce Method. The fair value of
noncompetition agreement acquired is identified using the Residual
Value Method. Goodwill is not recorded as the transaction
represents an asset acquisition in accordance with ASU 2017-01. Acquisition costs for asset
acquisitions are capitalized and included in the total cost of the
transaction. In addition, pursuant to ASC 805, the net tax effect
of the deferred tax liability arising from the book to tax basis
differences is recorded as a cost of the acquisition.

The following presents intangible assets activity:

November 30, 2018

May 31, 2018

Gross carrying amounts

$

3,500,000

$

3,500,000

Intangible asset acquisition:

ProstaGene, LLC

15,126,216

—

Accumulated amortization

(2,209,254

)

(1,968,846

)

Total amortizable intangible assets, net

16,416,962

1,531,154

Patents currently not amortized

35,989

35,989

Carrying value of intangibles, net

$

16,452,951

$

1,567,143

Amortization expense related to intangible assets patents was
approximately $152,900 and $240,400 and $87,500 and $175,000 for
the three and six months ended November 30, 2018 and 2017,
respectively. The estimated aggregate future amortization expense
related to the Company’s intangible assets with finite lives
is estimated, on average, to be approximately $1.6 million per
year for the next five years.

The entire disclosure for a business combination (or series of individually immaterial business combinations) completed during the period, including background, timing, and recognized assets and liabilities. The disclosure may include leverage buyout transactions (as applicable).